Suggested Solution

CAF 07: Term Test 02

Q. 1 (i) Removal of Existing CEO

 Board of directors can remove Chief Executive by passing a resolution with a three-fourth majority
of the total number of directors.
 Members can also remove Chief Executive by passing a Special Resolution.

(ii) Authorization and Tenure for Appointment

• Authorized Body:
The board of directors is authorized to appoint Mr. Nazim as the new CEO.

• Tenure:
Mr. Nazim shall hold office till directors elected in next election appoint a new chief executive.

(iii) Minimum Share Requirement and Members' Approval

• Minimum Number of Shares:
There is no minimum number of shares that Mr. Nazim is required to acquire to become the CEO.

• Members' Approval:
It is not necessary to obtain the approval of the members of the company. Terms and conditions
may be determined by directors in accordance with articles of company.

Q. 2 (i) Attending the Annual General Meeting (AGM)

A director has no responsibility to attend the annual general meeting of the company.

(ii) Attending the Board Meetings

If a director absents himself from three consecutive board meetings without obtaining leave of absence, he
shall cease to hold office.

(b) Assignment of Office

• A director cannot assign his office to any other person; such assignments are void.
• However, a director can appoint an alternate director if he is absent from Pakistan for 90 days or
more, and this appointment must be approved by the board of directors.

(c) Removal from Directorship

(i) Elected as a Director
• An elected director can be removed by passing a resolution in a general meeting.
• The director will not be removed if the number of votes cast against the resolution equals or exceeds
the least number of votes obtained by any elected director in the last election.

(ii) Subscribed to the Memorandum of Association

• A director who became a director by subscribing to the memorandum of association can be removed
by passing a resolution in a general meeting.
• The director will not be removed if the number of votes cast against the resolution equals or exceeds
the total number of shares of the company multiplied by the number of directors appointed at the
AGM divided by the total number of directors at the time.

Q. 3 (i) Decision Regarding Adjournment of the Meeting

Upon Requisition of the Members:
• If the EGM was called upon the requisition of the members and the quorum is not present within
thirty minutes of the scheduled time, the meeting shall be dissolved .

By the Directors:
• If the EGM was called by the directors and the quorum is not present within thirty minutes of the
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scheduled time, the meeting shall be adjourned to the same day in the next week, at the same time
and place .
• If the quorum is again not present at the adjourned meeting, the members present shall constitute a
quorum unless the articles provide otherwise .

(ii) Impact of Adjournment on Validity and Rights of Proxies

• The proxies deposited with the company before the adjournment will remain valid for the adjourned
meeting.
• The rights of the proxies to attend, speak, and vote at the adjourned meeting will continue as if the
meeting had not been adjourned .

(iii) Validity of the Resolution to be Passed at the Adjourned Meeting

• Any resolution passed at the adjourned meeting will be effective from the day on which it is actually
passed and not on any earlier date .

Q. 4 (i) Aspects to be Mentioned in the Special Resolution

The special resolution authorizing the investment must include the following aspects:
• Nature, Amount and Period of the investment
• purpose and other terms and conditions of the investment.

If the investment is in the form of a loan or advance, the investment must be made through a written
agreement that includes details such as nature, purpose, period, rate of return, fee or commission,
repayment schedule for principal and interest, security, and penalty clauses in case of default .

(ii) Condition for Return on Investment in the Form of Loan

• The return on investment in the form of a loan must not be less than the borrowing cost of the
investing company or such higher rate as may be specified by the Commission.
• The return should be recovered on a regular basis according to the terms of the agreement.
Otherwise, the directors shall be personally liable to make the payment.

(iii) Aggregate Investment Size:

The aggregate investment in associated companies must not exceed the amount specified in the special
resolution passed by the members of the company.

(iv) Trade Credit:

Normal trade credit is not considered as an investment in the context of restrictions on associated
companies.

Q. 5 Independent Director:
• An independent director is not considered when determining the status of associated companies.

Government Nominated Director:

• A director nominated by the Federal or Provincial Government, or a financial institution directly or
indirectly owned or controlled by the Federal or Provincial Government, is not considered in
determining the status of associated companies.

Shares Owned by Government Institutions:

• Shares owned by the National Investment Trust or a financial institution directly or indirectly
owned or controlled by the Federal Government or a Provincial Government are not considered.

Shares Registered in Central Depository:

• Shares registered in the name of a central depository but not beneficially owned by it are not
considered in determining the status of associated companies.
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Q. 6 Issue of Extension in AGM:
Relevant Legal Provisions:
The first AGM must be conducted within 16 months from the date of incorporation.

Decision and Basis of Decision:

• Directors were required to conduct the first AGM within 16 months, i.e., by July 5, 2023.
• Due to the fire incident, the company can apply to the Registrar (as PCL is an unlisted company) for
an extension in holding the AGM.
• The Registrar may extend the time period by up to 30 days, allowing the AGM to be conducted by
August 4, 2023.
• It is not permitted to delay the AGM beyond August 4, 2023.

Issue of Extension in Presenting Financial Statements:

Relevant Legal Provisions:
The first financial statements must be presented in the AGM within 16 months from the date of
incorporation.

Decision and Basis of Decision:

• Directors were required to present the first financial statements in the AGM within 16 months, i.e.,
by July 5, 2023.
• Due to the fire incident, the company can apply to the Registrar for an extension in filing the
financial statements.
• The Registrar may extend the time period by up to 30 days, allowing the AGM to be conducted by
August 4, 2023.
• It is not permitted to delay the filing of financial statements beyond August 4, 2023.

Directors' Responsibilities Regarding Election of Directors:

Relevant Legal Provisions:
As this is the first AGM after incorporation, the election of directors is required to be held in this meeting.

Decision and Basis of Decision:

 If the AGM is delayed, the election of directors will also be delayed.
 Retiring directors must take immediate actions to hold the election of directors.
 Holding such directors’ election can be delayed for up to 90 days (or such extended time as may be
allowed by the Registrar) only:
o In exceptional circumstances beyond the control of directors, or
o In compliance with any order of Court.
 In case of any hurdle, directors must report such circumstances to the Registrar within 45 days
before the general meeting in which the election is to be held.

Q. 7 Responsibilities of Arif Khan:

1. Disclosure of Interest:
o Although Arif Khan did not have any interest at the time of making the contract with NPL,
he became indirectly interested on June 10, 2022, when his father acquired 15% shares in
NPL.
o Arif Khan must disclose his interest in the contract with NPL.
2. Notice of Interest:
o Arif Khan can provide either a specific notice for each transaction with NPL or a general
notice indicating that “he is interested in every transaction with NPL.”
o Such a general notice shall expire at the end of the financial year and must be renewed by a
fresh notice given in the last month of the financial year.
3. Notification at Board Meeting:
o Notice of interest must be given in the first board meeting held after the acquisition of shares
by Arif Khan’s father.
4. Board Meeting Participation:
o If this contract or other contracts with NPL are considered in the future, Arif Khan shall not
be present at the board meeting while that matter is being considered.
o Arif Khan shall not attend the part of board meeting in which the matter will be discussed in
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which he is interested. He shall not be counted in the quorum for that part of the meeting,
and shall not vote on such matters. If he votes, his vote shall be void.

Q. 8 (i) Shareholders' Demand for Higher Dividend

Relevant Legal Provision:
Members can only accept, reject, or reduce the dividend. They cannot increase the amount of dividend
proposed by directors.

Decision and Basis of Decision:

As shareholders have demanded more than the dividend recommended by directors, their demand is not
justified.

(ii) Directors’ Recommendation Considering Unrealized Gain

Relevant Legal Provision:
Dividend shall not be paid out of unrealized gain on investment property.

Decision and Basis of Decision:

In this case, the directors’ recommendation is not appropriate. Dividend cannot be recommended out of
unrealized gain on investment property (being 75% of the undistributed profits). They can recommend up to
25% of undistributed profits only.

(iii) Consequences of Failing to Pay Dividend Within Stipulated Time

If a dividend is not paid within the specified days of its declaration, the chief executive of the company shall
be:
1. Fined for an amount up to five million rupees, and
2. Imprisoned for a term up to two years, and
3. Ineligible to become a director or chief executive of any company for a period up to five years.

(THE END)